National debt: 108 trillion or 428 trillion won?

With only a few days left before the parliamentary elections, the two major political parties, the ruling Millennium Democratic Party and the opposition Grand National Party, are waging a war of words to win voters' approval. One of the hottest topics being tossed around is the national debt and how much it really is.


The opposition Grand National Party (GNP) estimates the debt amount at up to 428 trillion won (approx. $357 billion), or a whopping 88.3 percent of the nation's gross domestic product. That estimate includes government-guaranteed loans of 90.2 trillion won, plus more than 200 trillion won worth of potential losses that may incur from the national pension scheme, as well as the confirmed amount of debt owed directly by the government reaching 108.1 trillion won.


The ruling party, Millennium Democratic Party (MDP), sees the world differently, however, citing remarks of an International Monetary Fund official who said that IMF guidelines for classifying national debt do not include government guarantees on foreign debts or debts that state-run social welfare and pension funds owe.


So, the MDP says the loan guarantee of over 90 trillion won, most of which goes to pay for cleaning up the mess wreaked up by insolvent domestic financial institutions and conglomerates, and for bonds issued to capitalize a deposit insurance fund, should not be counted in the debt amount. By the same reasoning, the MDP says, adding to the national debt figure any 'potential' loss from social programs in the distant future is nothing other than political propaganda to discredit the incumbent administration and the ruling party.


According to the MDP's explanation, the debt of 108.1 trillion won or 22.3 percent of the GDP is manageable in the long run and far lower than those of other OECD countries. For example, the national debt of Japan, one of the most heavily indebted industrialized nations, is equal to its GDP, while that of the US is a half of the GDP amounting to $3.8 trillion.


MDP pundits add that for the two years since the inauguration of the Kim Dae-jung administration in 1998 the debt has increased by 42.5 trillion won which was inevitable to shore up the sinking economy.


The opposition counters by saying, regardless of internationally accepted standards of debt accounting, it is prudent to be aware of the danger inherent in snowballing government IOUs. In addition, they say, a simple comparision of debt-to-GDP ratio across the countries is meaningless because the Korean government has to pay much higher interest payments up to 10 percent while governments of Japan and the US pay interest rates of only 1 to 5 percent.


Certainly they have a point in stressing fiscal prudence. But it should be noted that blowing a whistle to warn of coming danger based on hard fact is far different from jumbling figures to make a situation look worse than it really is. Fairness and logic must be applied. The reality of having to finance the huge bill to clean up bad loans and restore the nation's economy must be acknowledged, as also should the need for stability of the national pension fund.
National debt: 108 trillion or 428 trillion won?

Too, in fairness, it should be noted that the current opposition GNP, under another name at the time, was the party in power when Korea's economic crisis arose and agreements were made to increase the nation's debt in order to finance economic recovery.


There is no one denying that a sharp decline in the nation's debt could lead to lower interest rates and more private-sector investment, boosting productivity and creating better-paying jobs. But aspiring politicians should remember that the national debt is too important an issue to be treated as hollow rethoric.